What does value added tax mean?

Value added tax (VAT) is a consumption tax that the seller of goods or services must add to the price.


VAT might often cause grey hair for those light entrepreneurs who have not been engaged with entrepreneurship before. It's good to keep in mind that when invoicing a company, the party paying the bill is able to deduct the value added tax from his or her own purchases. This means it can't be included in the price of the service. Becuase of this, the prices between companies, are usually presented without VAT.

The company selling the product has the right to deduct value added tax from their purchases. This means that VAT makes a "circle" so that at the end, it is the buyer who pays the VAT.

This way the VAT is only paid once in the price of a product.

Example:

  1. Company buys a product worth 100 euros from a wholesale (VAT 24% = 24€)
  2. Company sells the finished product forward with 200€ (VAT 24% = 48€)
  3. Company must pay the covernment 48€ VAT with the deduction of 24 euros. The company pays 24€ to the tax office.

In Finland, all companies whose revenue for the accounting period is less than 10 000€ are relieved from paying VAT. SLP Group Oy behind UKKO.fi exceeds this limit, which means that all invoices made trough UKKO.fi are VAT liable.

Different VAT rates

There are many different VAT rates in Finland, however, the general rate used in most work is 24%. You can read more about the different VAT rates and possible reductions from vero.fi.

 

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